How the student loan debt bubble hurts the poor

posted at 4:01 pm on May 13, 2014 by Kevin Glass

We’re all aware of the student loan debt bubble and how it has quadrupled in the last ten years. Student loans are the second largest component of household debt now, behind only mortgages. Higher education has been posed as a solution for the problem of economic mobility for everyone in America, and as a result, more and more Americans are stretching themselves thin and taking on more debt in order to get a college education.

What goes unmentioned is how the societal norm that is pushing more people into college has the same effect on low-income Americans who are most affected by the debt burden. A new Brookings Institute study finds that student debt makes up a massive portion of household income:

College attendance is still a good idea for the average student, but it’s increasingly difficult for the marginal student. It’s unclear whether or not low-income students comprise more marginal students than the other income quintiles, but it is clear that the downside of an inability to complete a higher education would take a much greater toll on low-income households than it would on higher-income households.

What’s more, defaults on student loans are rising. Even if we assume that defaults are spread evenly across the income groups, a default is worse for a student in a low-income group than in the higher-income groups by mere fact that a student loan comprises a higher percentage of their assets than otherwise.

What this means is that, at the same time, more low-income students feel the need to go to college and are risking more to do so. The federal government has been pushing to expand access to higher education to more and more people, but at the expense of the marginal students. Going to college still isn’t free, even with subsidized loans. As the costs of going to college rise, so do the inherent risks. We might need to re-evaluate our national norms around the value of college for all.

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Which is why student loan forgiveness/restructuring is the best thing we could do. We could actually be a Western nation and invest in those citizens trying to be upwardly mobile. We used to do it. Nearly all of the “Reagan Democrats” who went to college did so in a system that was massively subsidized by federal and state governments via taxation. But they think their kids are stronger than them or something, as they continue to support policies that heap debt on students. Don’t forget that most of the cost increase in college education has come from student demands for certain kinds of facilities, living quarters, recreation spaces etc. etc. etc. Since people have decided that college campuses need to be Club Med, there are debts to pay on buildings built decades ago. And people make choices about college based upon these things. So congrats boomers, you have really ruined everything.

The student loan debt bubble only hurts the poor, if Comrade Obama says it hurts the poor, and we all know Comrade Obama would never ever lie to us.

oscarwilde on May 13, 2014 at 4:03 PM

Well, now if it hurts the poor, Comrade Obama can certainly wave his mighty pen and forgive the debt for the poor. He’ll be forever lavished with gratitude and millions more loyal dems voters….just as long as the goods keep being delivered.

Anyone saddled with said debt that isn’t poor. Buck up and live with it.

They go to college and pay $ 200,000 for an insignificant liberal arts degree that will land them a mediocre paying job, if they get one to begin with, and where there is zero chance of them paying back the loan…

There should be a law not to give any loans for a lot of liberal arts and humanities majors because the default is almost certain in these cases… There also should be a law forcing colleges to give students a detailed market study of the potential employment of their major of study and how much starting and middle career salary they will get with their degrees…

Loans forgiveness? Should we also forgive the mortgage loans? why not the credit card loans? Where do we f***ing draw the line liberal fools?

No one forced an idiot to go to college and amass a massive debt to acquire a meaningless liberal arts or humanities degree with very little prospect of getting a decent paying job that our industrial and technological economy needs…

Which is why student loan forgiveness/restructuring is the best thing we could do. We could actually be a Western nation and invest in those citizens trying to be upwardly mobile. We used to do it. Nearly all of the “Reagan Democrats” who went to college did so in a system that was massively subsidized by federal and state governments via taxation. But they think their kids are stronger than them or something, as they continue to support policies that heap debt on students. Don’t forget that most of the cost increase in college education has come from student demands for certain kinds of facilities, living quarters, recreation spaces etc. etc. etc. Since people have decided that college campuses need to be Club Med, there are debts to pay on buildings built decades ago. And people make choices about college based upon these things. So congrats boomers, you have really ruined everything.

libfreeordie on May 13, 2014 at 4:07 PM

Did you have a seizure while you were typing this? Even by your standards, this is an impressive piece of disjointed, contradictory, blame-everyone-at-once nonsense.

I worked at a very well known private university where the tuition alone approached $40K/year. If you’re so stupidly brilliant that you think running up $200K of debt to get an undergraduate art history degree is a great idea, I don’t see why the taxpayer should be the one holding the bag at the end when your barista position can’t cover the bills.

Yes, college is expensive today, and, yes, the job market for young people blows (I wonder why that is. The Lightworker should do something about that.), but students today can still make intelligent choices on what they study and where they study it. Having Uncle Sugar “fix” everything will only ruin things even futher. Is it just me or does everything the Federal government touch turn to crap? Maybe we could found a political movement on that observation.

Since people have decided that college campuses need to be Club Med, there are debts to pay on buildings built decades ago. And people make choices about college based upon these things. So congrats boomers, you have really ruined everything.

libfreeordie on May 13, 2014 at 4:07 PM

I’m not convinced that you don’t have it backwards. Most students and parents don’t care about all the eye candy. Colleges are adding it to justify their huge tuition increases.
Most of us lived in dorms that would be considered almost cruel now. We don’t necessarily think our kids should be living in luxury, but if we’re paying $40k a year we sure expect something better than what we paid $5k for 30 years ago.

One problem is the college ranking racket, which judges schools now based on the modernity of their facilities. My alma mater recently blew $200 million on a new Pharmacy school building, because its prefectly fine but old existing one had caused the school to drop out of the Top Ten in the US News and World report rankings. Now it’s back up to #5 which guarantees that top students will want to come there.

Which is why student loan forgiveness/restructuring is the best thing we could do. We could actually be a Western nation and invest in those citizens trying to be upwardly mobile. We used to do it. Nearly all of the “Reagan Democrats” who went to college did so in a system that was massively subsidized by federal and state governments via taxation. But they think their kids are stronger than them or something, as they continue to support policies that heap debt on students. Don’t forget that most of the cost increase in college education has come from student demands for certain kinds of facilities, living quarters, recreation spaces etc. etc. etc. Since people have decided that college campuses need to be Club Med, there are debts to pay on buildings built decades ago. And people make choices about college based upon these things. So congrats boomers, you have really ruined everything.

libfreeordie on May 13, 2014 at 4:07 PM

Uh Oh, libfree. You’ve done it now. Out come the pitchforks and torches!

The problem as I see it for my own kids, as to whether to attend college or not, is that college is a venue where many people meet their spouse (myself included), and people do tend to marry at similar educational levels (not many PhDs married to high school dropouts). There’s an element of social sorting in going to college. Harsh but true.

Mmm, how about this: some cardboard signs in every guidance counselor’s office, maybe another stapled to the high school diploma, saying:

If you go to college and drop out before you get the degree, YOU STILL OWE THE MONEY.

or

If you din’t do all that well in high school, COLLEGE GON B A BIOTCH.

Those “marginal” students (many of them Affirmative Action, perhaps?) could be gently encouraged to not attempt to invest in themselves beyond their ability to finance the loss if the investment goes sour.

It’s a win/win/win for progressives. The hard left faculty gets paid. They get to keep indoctrinating the youts, and best of all for them, the crushing debt is moving the children of the middle class into the dependency class.

It’s destructive and malignant. Progressives wouldn’t have any other way.

‘What goes unmentioned’, even in this comparatively well written article, is the percentage of student loans that are in forbearance or in income contingent or deferred payment plans.

Any student may select IBR ( income base repayment) or ICR ( income contingent repayment) plans, both of which will allow the student to repay their loan over a 25 year period with payments calculated as a percentage that the former student earns above the poverty level.

A huge portion of outstanding student loans are not being repaid because the former student isn’t earning enough to require repayment under one of these plans due to underemployment, or any income at all being unemployed.

This portion of loans constitutes a potential time bomb, as any portion of these loans that is not repayed will be automatically forgiven 25 years from the time the loans were incurred, even if there has never been a payment made on the balance.

Which is why student loan forgiveness/restructuring is the best thing we could do. We could actually be a Western nation and invest in those citizens trying to be upwardly mobile. We used to do it. Nearly all of the “Reagan Democrats” who went to college did so in a system that was massively subsidized by federal and state governments via taxation. But they think their kids are stronger than them or something, as they continue to support policies that heap debt on students. Don’t forget that most of the cost increase in college education has come from student demands for certain kinds of facilities, living quarters, recreation spaces etc. etc. etc. Since people have decided that college campuses need to be Club Med, there are debts to pay on buildings built decades ago. And people make choices about college based upon these things. So congrats boomers, you have really ruined everything.

libfreeordie on May 13, 2014 at 4:07 PM

If you make money easier to get for something and drive up demand… the price will drop?

No, don’t show me where you pulled that information from; i know where it came from and don’t need to see that. Goatse was bad enough the first time.

I lived in NC the first time Pat McCrory ran for governor in 2008. One issue that the Dems were pushing at that time was free tuition for the community colleges of NC. I went to hear McCrory speak at a small community fundraiser and someone brought up the “free tuition” proposal. He said “nothing is free; everything costs money. The college buildings that have to built to accommodate the increase in students cost money. The instructors to teach in them cost money. The textbooks cost money. Someone will have to pay for all of it and it’ll be the residents of North Carolina in the form of higher taxes.”

After that profound statement, I had no problem voting for him in the primary.

Why not let students sue their colleges for pocketing grotesquely huge tuitions while teaching useless liberal tripe? Where are the investigations on gouging?

rhombus on May 13, 2014 at 4:22 PM

There is no “let” to it. Students CAN sue colleges over these worthless degrees they are overcharging for, and I fully expect this is going to start happening and soon. For one thing, colleges have a metric shiite ton of money in their endowments and trial lawyers are not adverse to some blue-on-blue action that will make them rich!

An education can be a defective product just like a 2009 Government Motors Cobalt.

College attendance is still a good idea for the average student, but it’s increasingly difficult for the marginal student.

no, it’s not just about what kind of student you are. it’s all about what kind of job you want after college.

people should only go to college if they definitely need the skills that a college degree would teach. you should only go to a four-year college if you truly need what they teach. do not go just because “a college degree looks good to employers.” that was my mistake! that’s what my parents thought and that’s why i had to go to college. thankfully i’m not in debt but still, my family and i spent tons of money on college and not only did it strongly affect my emotions by giving me high levels of stress and depressed feelings, (yes it really was that bad) i didn’t learn much in terms of specific job skills. i learned a lot of things but i’m not sure much of what i learned was useful. (i think essay-writing skills were the most useful, i guess)

yes a bachelor’s degree looks good to employers… but you know what also looks good to employers? experience. i have experience in several internships and i care about that more than what i learned in college.

many people go to college just because they are scared not to. they think having a degree is necessary for a good job. but they go into lots of debt. people go to college because they supposedly “have to” and their parents push them. is it worth it?

the solution is self-teaching and finding low-cost ways to learn the skills you need.

(if you don’t want to read the whole article, he over-estimates a $274 a year per student increase assuming ALL debt owed by colleges is paid by students.)

Some researchers have found differently

As concern over rapidly rising college costs and tuition sticker prices have increased, a variety of research has been conducted to determine potential causes. Most of this research has focused on factors unique to higher education. In contrast, cost disease theory attempts to create a comparative context to explain cost increases in higher education. The theory postulates that all heavily labor-intensive industries will experience faster than average cost increases, based on the limitations in leveraging technology to increase productivity.

They be talkin’ LABOR COSTS, perfessor. Salaries. Not buildings constructed 30 or 40 years ago (which were frequently covered by endowment funds, not paid for out of cash flow- which is why campuses are so full of those Joe B. Richguy Physics Building and suchlike. Ever wonder?)

The Student Loan/College Bubble will actually be a positive when it explodes (and it’s in the process of exploding).

Academia is the home of and the nesting grounds for modern leftwing totalitarian socialists. It’s where they come from. It’s where they often go back to after “serving” various Democrats.

The death of today’s completely UNSUSTAINABLE revenue model for them will mean that these colleges and universities will be FORCED to become leaner, more efficient, cheaper, and more effective. It will mean many feathered nest programs with ZERO value on the job market (outside academia) such as Womyn’s Studies are going to cease to exist, and young people’s minds won’t be polluted by these professors who teach them.

The great irony here is that the rapid collapse of Academia has been made imminent and inevitable by Barack HUSSEIN Obama’s anti-growth economic policy. Had he done NOTHING to the economy except golf, we’d be in an economic boom by now, thus kicking down the road the student loan avalanche another decade or two. Instead, academia is staring down the barrel of a gun and the trigger is being pulled RIGHT NOW.

Some form of debt forgiveness is going to have to happen. It would be inhumane if there wasn’t. However, it’s going to have to come coupled with REAL REFORMS of the student loan process AND ACADEMIA, to ensure that the bubble doesn’t just become re-inflated and we repeat the same process a decade or two later.

Some ideas:

1. Students will be allowed to discharge student loan debt in bankruptcy.

2. Lenders will be required to consider the student’s previous academic record, as well as the discipline they seek a degree in evaluating both their interest rate AND fitness for a loan. This would stop taxpayers from being on the hook for someone to spend 8 years pursuing a Doctorate of African Transgendered Womyn’s Studies. If people want to study these “disciplines” they will have to do it out of pocket.

3. Schools that accept federal student loans are going to have to offer group discounted rates on tuition, books, room and board, just as doctors have to with medicare and medicaid. If it’s good enough for medicine, that’s good enough for academia, no? This will help prevent the practice of academia constantly raising rates to feather the nests of non productive programs on the backs of both their students and taxpayers.

Don’t forget that most of the cost increase in college education has come from studentliberal professor demands for certain kinds of facilities, living quarters, recreation spaces etc. etc. etc.

libfreeordie on May 13, 2014 at 4:07 PM

FIFY. Hey wait… don’t you claim to be a liberal professor?

How can you really claim that students are demanding these things? Students enroll, pay tuition, then move off campus, etc.

In all seriousness, after taking college tours for several kids, it is VERY apparent that those things are for people who WORK AT THE UNIVERSITY. You really want to claim that completely remodeling the entrance to a building was demanded by the students? Really?

1) Make student loans dischargeable in bankruptcy.
2) Have colleges become the guarantor and take the hit.

The 1st step would offer a way out if needed. The 2nd step would ensure that useless degrees are culled from offerings.

dominigan on May 13, 2014 at 5:02 PM

I really like your idea.

That is a very simple way to make colleges accountable for their results. Right now, they have none. They bear no risk at all in having worthless degree programs because they get paid for them no matter what.

The irony here is that such a system would largely drive these useless libtard subjects OUT of the public colleges and into private ones, putting them out of the reach of all but the most well heeled. Their audience would shrink to only corrupt trust fund red diaper doper babies of the left.

The reasons for the escalation of costs includes the economy and unemployment since states have been forced to cut back on higher education funding in order to balance their budgets.

Public employee union demands have caused states to experience severe budget shortfalls across the nation.

Another reason for tuition increases has been demands by employee unions, including faculty, for benefit and pay increases at colleges and universities.

But, by far, the biggest factor driving tuition increases at universities and colleges across the nation is the fact that they can ask anything they like for fees and tuition and students will line up to pay for it as they believe they have no alternative, and the federal government is standing by waiting to write the checks to the schools to provide for that opportunity regardless of the course of study the student chooses.

This accounts for funding of ’boutique’ classes and degrees, like ‘African American Studies’, ‘Women’s Studies’, etc. which have driven tuition hikes at a rare of 28% faster than inflation.

There’s plenty of blame to go around for why college and university tuition rates have exploded. But blaming the Boomers is just lame.
They’re the one’s paying for their kids and even grand kids educations.

For starters, baby boomers are spending a lot more on education. That’s no surprise considering the cost of a college education has grown faster than income for decades. From 1990 to 2010, education expenditures increased the most — by 80% for 45 to 54 year olds and 22 percent for 55 to 64 year olds.

“Today, outstanding student loans amount to more than one trillion dollars.11 A recent analysis by the New York Federal Reserve Bank found that one-third of the nation’s student loan debt is held by individuals over the age of 40,” the report says.

Adult children are taking a toll on their boomer parents. Nearly 50% of parents with children between age 18 to 39 were supporting them in various ways including living expenses, transportation costs, spending money, medical bills and help with paying loans like student debt.~ FORBES

Which is why student loan forgiveness/restructuring is the best thing we could do. We could actually be a Western nation and invest in those citizens trying to be upwardly mobile.

libfreeordie on May 13, 2014 at 4:07 PM

Or we could drop the nonsense that every “graduate” of a high school is college material. There are individuals who simply don’t take to traditional learning, those who have no interest, those who need to grow up before seeking higher education, and those who are simply not intelligent enough.

I mean, look at you libfree. No number of degrees on the wall is going to make you into an intelligent and educated contributor to society. Why waste the money on your “education.” It would be like spending money on music lessons for a cow.

And yes – there are way too many kids in school. They have neither the intelligence or intellectual curiosity to be there. It is a huge waste of money. Even the schools are telling us that many students learn nothing.

Another thing that MUST happen in reform of Academia: The student is not just the CUSTOMER they are the EMPLOYER. Giving them value for their time and expense isn’t just a high priority, it’s the ONLY PRIORITY.

And those f***ing super hypocrite socialists who run the colleges lecture everyone about capitalist greed when without any doubt they are the greediest of all… How many other products increased 1000 times in cost in 30 years? None… To get 1000 times cost increase in 30 years it means a cost increase of approximately 26% year over year… Talk about the ultimate greed…

And yes – there are way too many kids in school. They have neither the intelligence or intellectual curiosity to be there. It is a huge waste of money. Even the schools are telling us that many students learn nothing.

And those f***ing super hypocrite socialists who run the colleges lecture everyone about capitalist greed when without any doubt they are the greediest of all… How many other products increased 1000 times in cost in 30 years? None… To get 1000 times cost increase in 30 years it means a cost increase of approximately 26% year over year… Talk about the ultimate greed…

mnjg on May 13, 2014 at 5:21 PM

Most products in the private sector have actually DECREASED in real cost over the decades as more efficient production methods have been employed!

But I disagree with the original premise. Most financial aid is need based, not merit based. In most cases, if you’re accepted to the school and you’re low-income, you’re going to find college very affordable.

We’d have to make sure that the student can’t easily get rid of the student loan debt. The student would have to prove that the student loan was used for tuition/school expenses, not lifestyle or living expenses.

One thing that shocks my students when I inform them of it (reality often does shock them) is that for the vast majority of student-loan debt, you cannot get out of it. You will either pay it off or die, whichever comes first. Generally speaking, you cannot wipe out student loan debt through bankruptcy, and if you have a parent cosign, they are on the hook as well. If you default, you will potentially see your wages garnished, tax returns garnished, state/federal benefits and/or employment denied, etc., etc.

One thing that shocks my students when I inform them of it (reality often does shock them) is that for the vast majority of student-loan debt, you cannot get out of it. You will either pay it off or die, whichever comes first. Generally speaking, you cannot wipe out student loan debt through bankruptcy, and if you have a parent cosign, they are on the hook as well. If you default, you will potentially see your wages garnished, tax returns garnished, state/federal benefits and/or employment denied, etc., etc.

Buyer beware, big time.

Yes, and that the “forgiveness rate” is less than 1%. IIRC, it was slightly under 0.1% last year.

Don’t forget that most of the cost increase in college education has come from student demands for certain kinds of facilities, living quarters, recreation spaces etc. etc. etc. Since people have decided that college campuses need to be Club Med, there are debts to pay on buildings built decades ago. And people make choices about college based upon these things. So congrats boomers, you have really ruined everything.

libfreeordie on May 13, 2014 at 4:07 PM

You almost got it right brainfree, but as usual you drew the wrong conclusion from the facts. Yes, college campuses are now more like Club Med at twice the price, but the congrats go to liberal idiots like yourself who are part of the education-government complex. Greater government loan amounts dictate greater campus expenditures, which result in overbuilding the campus. You gotta give them something to justify the enormous increases in tuition brought about by the easy government loan money.

Then all the touchy-feely departments, like women’s studies, african-american studies, lgbtq studies, and the like are a tremendous drain on the resources of a college. These departments take up professorships, office staff, building space and more, but do little to contribute to the financial health of the college. These are not necessary departments but heaven forbid they should be underfunded.

So, brainfree, look in the mirror to see who is to blame for the student loan crisis. I know it’s not pretty, but really do have a look.

Don’t forget that most of the cost increase in college education has come from student demands for certain kinds of facilities, living quarters, recreation spaces etc. etc. etc. Since people have decided that college campuses need to be Club Med, there are debts to pay on buildings built decades ago. And people make choices about college based upon these things. So congrats boomers, you have really ruined everything.

libfreeordie on May 13, 2014 at 4:07 PM

Well that and the fact that useful colleges/departmets within the university system have to subsidize worthless degrees (ya know like afro-queer real estate theory and post hellenic lesbian poetry)in other fields of studies.

And it’s not quite the boomers who demanded these things..unless you are talking about the boomers employed in the university systems.

Typical prog response. The government interferes with the market, creates massive inflation (tuition, like medical cost, have far exceeded the rate of inflation – see the housing boom bubble), and the solution? More government intervention. Lovely.

There’s plenty of blame to go around, far beyond just “gummit bad…free market good!” The fact is that the government doesn’t hold a gun to any student’s head to take financial support, nor does the government pay all of the bills. Students and parents are spending/borrowing billions and billions of dollars. They are actively choosing to prop up an unsustainable run-up in prices and services. If you’re sending your kid to a school where they will live in better accommodations than they’ve ever had in their life, and perhaps will ever have again (swimming pools, workout rooms, game rooms, etc., etc.), you’re doing higher education wrong and sending the wrong financial signals through the system, rewarding the wrong features in a school.

Yes, it is the government’s fault. The dollars for infrastructure usually come directly from the government. The infrastructure in, colleges raise tuition with the reasonable expectation that government loans and grants to students will substantially increase. Yes, some upper middle class parents get sucked in, but the college-government complex is squarely to blame

At the state level, many states have dropped funding of higher ed below the contributions of students. Government doesn’t make up the difference in rising tuition rates. Parents and kids, and their borrowing, do.

That’s a fact driven by consumer choices. Bad choices. It’s not just government that drives higher ed up and up in price. Government is just one aspect. If consumer demand slackened, prices would stabilize. Or, if consumers would just refuse to attend ‘bells and whistles’ schools and go for value, but they don’t. They spend. Big.

You can blame them too. You’re not forced to go to a school that costs $40,000+ a year. Students and families have a choice.